search.noResults

search.searching

saml.title
dataCollection.invalidEmail
note.createNoteMessage

search.noResults

search.searching

orderForm.title

orderForm.productCode
orderForm.description
orderForm.quantity
orderForm.itemPrice
orderForm.price
orderForm.totalPrice
orderForm.deliveryDetails.billingAddress
orderForm.deliveryDetails.deliveryAddress
orderForm.noItems
RESEARCH THINKTANK


Anewmapof global capital allocation


CAPITALSUBJECT


CONNECTING FIRMS IN TAX HAVENS TO THEIR PARENTS IS VITAL TO ASSESS CROSS- BORDER EXPOSURES, WRITE ANTONIOCOPPOLA,MATTEO MAGGIORI, BRENT NEIMAN AND JESSE SCHREGER


Of all the foreign stocks and bonds held by Americans, around 15%are issued by firms in the Cayman Islands. These holdings exceed US portfolio investment in Germany or Spain —countries whose economies are hundreds of times larger than the small Caribbean island. Howcan this be? Economists have long under-


stood that standard international financial statistics associate a securi- ty’s location with the residency of its issuer, not with the nationality of the ultimate parent company. So, regardless of where a multinational corporation conducts its operations or locates its headquarters, if it raises capital by issuing a bond through its Cayman Islands subsidi- ary, purchases of that bond will be recorded as portfolio investments in the Cayman Islands. For most purposes, it is not


useful to treat these enormous posi- tions as connecting investors to economic activity in the Cayman Islands or other tax havens, such as Bermuda, the Channel Islands and the British Virgin Islands. Our recent academic work offers an alternative: we use several security- by-security datasets to unwind complex corporate hierarchies and connect affiliates in one country with their ultimate parents in another. We then use this parent– subsidiary mapping, together with data on who owns these stocks and bonds around the world, to reallo-


84


cate portfolio investment positions in tax havens.


Larger corporate bond positions in Brics Our restatements demonstrate that the exposure of developed coun- tries to corporate bonds issued by large emerging markets, such as Brazil, Russia, India, China and South Africa (Brics), vastly outstrip what one would find from the standard official statistics. For example, European companies hold billions of dollars in bonds issued by the Luxembourg-resident firm Gaz Capital. Our algorithm links Gaz Capital to its parent, the Russian energy giant Gazprom, and adjusts the bilateral investment data accordingly. These positions contribute to


the purple link in Figure 1, showing $45bn of bonds issued by Luxembourg-based subsidiaries of


Russian firms and held by Eurozone investors. Eurozone investors also have substantial positions in securi- ties issued by Petrobras Global Finance, the Dutch affiliate of the Brazilian firm Petrobras. These posi- tions contribute to the red link in Figure 1, showing $47bn of bonds issued by Dutch subsidiaries of Brazilian firms. Whereas data collected by the


IMF and national central banks report that less than 3% of the Eurozone’s external bond portfolio is held in Brics country debt, we demonstrate that after including bonds issued by corporate affiliates located in tax havens, the Eurozone’s bond exposure to the Brics more than doubles. This pattern is similar for other advanced economy investors. After taking into account the


bonds issued by tax haven affiliates of Brics firms, the bond exposures


www.fDiIntelligence.com June/July 2021


Illustration by John Holcroft


Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28  |  Page 29  |  Page 30  |  Page 31  |  Page 32  |  Page 33  |  Page 34  |  Page 35  |  Page 36  |  Page 37  |  Page 38  |  Page 39  |  Page 40  |  Page 41  |  Page 42  |  Page 43  |  Page 44  |  Page 45  |  Page 46  |  Page 47  |  Page 48  |  Page 49  |  Page 50  |  Page 51  |  Page 52  |  Page 53  |  Page 54  |  Page 55  |  Page 56  |  Page 57  |  Page 58  |  Page 59  |  Page 60  |  Page 61  |  Page 62  |  Page 63  |  Page 64  |  Page 65  |  Page 66  |  Page 67  |  Page 68  |  Page 69  |  Page 70  |  Page 71  |  Page 72  |  Page 73  |  Page 74  |  Page 75  |  Page 76  |  Page 77  |  Page 78  |  Page 79  |  Page 80  |  Page 81  |  Page 82  |  Page 83  |  Page 84  |  Page 85  |  Page 86  |  Page 87  |  Page 88